Blog:Food companies "cannon fodder" in UK supermarket price war

There has been a rise in the number of food companies in the UK filing for insolvency - and the intensification of competition between the country's grocers has been blamed.

According to data issued today by accountancy firm Moore Stephens, 146 food producers have entered insolvency in 2014 - up from 114 in the whole of 2013.

And the firm took aim at the "pain" caused by the competition among UK supermarkets as they battle to win over the country's consumers, more and more of whom are being enticed by the cut-price offer of German discounters Aldi and Lidl.

"The supermarkets are going through the bloodiest price war in nearly two decades and are using food producers as the cannon fodder," Duncan Swift, a partner at Moore Stephens, says.

"The fact that food producer insolvencies are rising so rapidly, while business insolvencies are falling overall, shows just how much pressure the sector is under."

The continued inroads made by Aldi and Lidl into the market shares of the Big Four has prompted some significant moves on price, not least by Morrisons, the fourth-largest grocer in the UK.

The impact of those moves can be seen in the latest market data from Kantar Worldpanel, which last week showed the UK grocery market had fallen into decline for the first time since it started measuring the sector in 1994.

Sales dipped 0.2% year-on-year in the 12 weeks to 9 November on the back of a 0.4% drop in prices. Welcome news for consumers but, perhaps not, some industry watchers say, for manufacturers.

"UK supermarkets are trying to compete on price with Aldi and Lidl but with profit margins that are far higher than these discount chains. To try and make the maths work, the big supermarkets are putting food producers under so much pressure that we have seen a sharp increase in the number of producers failing," Stephens adds.

It is perhaps too simplistic to pin the blame for rising insolvencies solely on supermarket price campaigns but, given the four largest grocers still account for over 75% of the market and have turned the price needle up to 11, they are likely to be a significant factor in businesses coming under pressure.